• Patent infringement liability for overseas providers
  • March 25, 2005
  • Law Firm: Mayer, Brown, Rowe & Maw LLP - Chicago Office
  • A patent action in the US involving the technology underlying the BlackBerry email device, together with an earlier English case involving William Hill's online gaming site, have highlighted a risk all businesses using cross-border technological solutions need to give careful consideration. Following the landmark (and controversial) decision of the Court of Appeals for the Federal Circuit, the Canadian manufacturer of the BlackBerry has now agreed to settle by making one of the largest payments in US patent history (reported to be US$450m), so as not to jeopardise losing the lucrative US market.

    Patents are national rights. Conventional wisdom is that a patent will only be infringed if the offending activity and the infringer are within the country which has granted the patent. In the US, for example, s.271(a) in the patent statute states that:

    "...whoever without authority makes, uses, offers to sell or sells any patented invention within the United States or imports into the United States any patented invention during the term of the patent therefore, infringes the patent".

    Similarly, in the UK, s.60 of the Patents Act 1977 provides:

    "...a person infringes a patent for an invention if, but only if, while the patent is in force, it does any of the following things in the United Kingdom in relation to the invention without the consent of the proprietor..."

    BlackBerry litigation

    The US claimant NTP pursued RIM, the manufacturer and vendor of the BlackBerry technology, for damages and an injunction to restrain patent infringement. In 2002 the US District Court for the Eastern District of Virginia ruled that RIM was guilty of infringement and damages of US$53m were awarded, together with an injunction which was stayed pending appeal. RIM appealed, arguing that, since a key element of the system it was licensing was the BlackBerry relay component which, in the case of the US implementation, was located in Canada, it could not be infringing the US patent.

    RIM argued that all the steps of the invention had to be performed within the US for there to be infringement of the US patent. The District Court had specifically held the location of RIM's relay in Canada did not preclude infringement of the US patent. RIM appealed the District Court's final judgment.

    The US Court of Appeals for the Federal Circuit handed down its decision in December 2004. It held that use of the BlackBerry system had taken place within the US "regardless of whether the messages exchanged between them [the devices] may be transmitted outside the US at some point along their wireless journey". The BlackBerry system was being used by US domestic users to communicate with each other in the US and, in the Federal Circuit's view, RIM was directly liable under s.271(a) for the "beneficial use" by the US domestic users.

    RIM then filed for a rehearing by the Federal Circuit, raising the following points of significance:

    • The Federal Circuit's decision amounted to "an extension of liability for direct infringement". RIM argued that by carrying out essential activities outside the US (i.e. the relay), it could not be using the invention within the US.

    • Where a technological solution is implemented by elements operating in a number of countries, RIM contended that there should be no direct infringement in the US particularly in the light of the patent statutes that require the patented invention to be used in the US.

    • RIM further noted that the Federal Circuit misapplied, or failed to consider, the full scope of s.271(a), which defines infringement as "whoever... uses ... within the United States ...". RIM argued that, because it did not "use" the system or the relay in the US, it could not infringe, and a focus on the "whoever" part of the statute supported that conclusion.

    Given that RIM has now settled the case (prior to any rehearing) in return for a royalty-free unfettered licence to use the necessary technology, it is unfortunate that these important arguments will have to wait until another day and another dispute to be completely resolved by the US courts.

    The concern remains, however, for businesses selling technology solutions into the US market, but otherwise having no operations in the US, that they can be fixed with direct liability for the infringing acts of their customers -- as RIM was by two US courts. In fact the Canadian Government was so concerned about this point, not least given its proximity to the US, that it filed its own amicus brief in support of the request for a rehearing of the case. It argued that the decision would impact on technological advances made in Canada that have cross-border implications and may also affect crossborder trading.

    William Hill decision

    In Menashe Business Mercantile v William Hill Organisation, William Hill argued, as a preliminary issue, that there could be no infringement of the patent where the host computer, which was an essential part of the apparatus claimed in the patent, was located outside the UK in Antigua but was connected to the rest of the apparatus operating in the UK. On a strict interpretation, key elements of the apparatus were not located in the UK and so there was an argument that there was no infringement of the UK patent. The Court of Appeal held in 2002 that it was irrelevant that the host computer accessed by punters located in the UK was based in Antigua. The issue was where the punter was using the host computer and since it was being used in the UK there was infringement by the UK based punters. William Hill would therefore be liable for indirect infringement by supplying the punters with the means to infringe.

    The outcome of William Hill decision is therefore broadly similar to the BlackBerry decision in the US. The location of the users of the systems appears to be the decisive factor so far as liability for infringement of national patent rights is concerned.

    Implications for technology licensors and outsourcing transactions

    Although it seems curious that these issues have taken until now to emerge, there is clearly a risk of patent infringement where essential elements of the invention are located outside the country which granted the patent and, at least so far as the RIM decision in the US is concerned, a risk that parties located entirely outside the US could become liable for infringement of the patent inside the US.

    In off-shore outsourcing transactions, where business processes are being outsourced across borders, suppliers and customers will need to consider the risks that the parties may be exposed to liability for infringement of business method patents even though they are located outside the country which has granted the patent and/or they are using a technological solution which merely allows customers in a particular country to access a technology which is provided by resources located largely outside the country in which the patent subsists.